7 Steps to Preventing Expense Reimbursement Fraud

Expense reimbursement fraud is one of the growing problems faced by organizations today. Preventing fraud is important to avoid financial burdens on a company.

A report carried out by the Association of Certified Fraud Examiners found that expense reimbursement frauds represent about 11 percent of fraud in large companies and 21 percent in small businesses.  

In this blog post, you will learn everything you need to know about expense reimbursement fraud. You will also learn about the steps you can take to minimize the risk of fraud.

What is Expense Reimbursement Fraud?

Expense reimbursement fraud involves spreading the expense over a while to avoid detection. The median duration of the fraudulent expense is one year with the median amount of $31,000. The amount may seem trivial, but it represents a large loss for any company over time.

Here are steps that you can take to reduce the risk of expense reimbursement fraud.

1. Set a Clear Expense Policy

One of the foremost steps to prevent accounting fraud is to set a clear and transparent policy for recording expenses. The policy should clearly explain the process of categorizing, recording, and verifying expenses.

The accounting process should clearly explain the process of recording receipts. In addition, the expense policy should clarify the steps that should be taken to verify expenses.

The expense record policy should be discussed with all the employees. It is important that the clerical staff clearly understands the process of recording and validating expenses.

2. Attach Original Receipts

A critical step that can help reduce expense reimbursement fraud is to attach original receipts rather than a photocopy or digitized copy.

A copy of the receipt can be easily manipulated. Make sure that employees attach the paper receipts to the financial records. Companies can also ask the vendor to send a digital copy of the invoice through a secure communication channel. The digital copy of the receipt and invoices can be validated by looking at the email received from the vendor.

3. Regular Review of Reports

Expenses of a company can also be validated by looking at the credit card, bank statement, and other financial records. The accounting information from the report can be reviewed to validate the expense recorded by employees.

The review of expenses should be carried out regularly. Moreover, on-the-spot reviews are also important to detect any anomaly in recording expenses. Frequent audits and verification of the expenses will help avoid expense reimbursement fraud. It will help in ensuring an accurate record of financial information.

Any type of infractions recognized during an audit should be investigated on the spot rather than leave it for later. The regular review will prevent both deliberate and inadvertent errors in recording expenses.

4. Make Employees Accountable

Making employees accountable is critical for preventing expense-related fraud. Your employees should know the repercussion of committing any type of accounting fraud. Making them accountable will not just prevent expense fraud but also result in more accurate and timely preparation of accounting records.

You should make the clerical staff responsible for the record of original receipts. They must record both physical and digital copies of the receipts. The receipts should be recorded in a manner that they can be easily located and examined whenever required.

5. Digital Audit Trail

Many accounting software features a digital audit trail that makes it easier to track receipts. You can know about the changes to the expense report through this feature. It allows you to know whether the expense records have been changed by unauthorized personnel.

Make sure that only authorized personnel are allowed to make changes in the expense record. You should restrict the ability of users to modify accounting information. The preventive measure will greatly reduce the risk of accounting fraud.

6. Create a Travel Reimbursement Policy

One of the common mediums of expense reimbursement fraud is inflated travel expenses. To prevent travel-related expense fraud, you must create a policy that governs this activity. The policy must specify per diem amounts for different activities. The same should be communicated to employees in the form of a handbook.

All travel-related expenses should require original receipts. The receipts should be submitted to the accounts department for validation and record of the expense. The receipts must be kept for a specified time to allow audits later on.

A formal review process should be created for the evaluation of travel expenses. The travel expenses must be authorized by a department manager. In addition, the HR department should also review and validate the expense.

7. Clear Communication

Communicate the rules clearly to employees so that they know the boundaries within which they should operate. It is important to communicate to them what is not acceptable when recording and disbursing expenses.

Employee fraud will be less likely to occur if employees know that they will be accountable even for petty expenses. You should communicate to them the repercussions of deliberately entering wrong amounts and pocketing the extra receipts.

You must talk with your employees about business values and ethics. Tell them that they should display a high level of professionalism in recording accounting information.

The company rules should be followed by junior and senior staff. The senior management should set the tone through ethical conduct. All staff must follow the company policy regarding expense identification and record to the letter.

Conclusion

A routine review of petty expenses may seem unnecessary. But it is important to prevent costly expense fraud. Resolving expense-related problems, later on, can be difficult. You should not wait for a large problem before taking action.

Create a formal process to record all types of expenses. Disbursements must be made through the proper channel through the department head or HR managers. A cash advance should be limited to prevent expense reimbursement fraud.

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